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Counterfeit Goods: an important Canadian precedent case
The Canadian federal court has issued a severe warning to counterfeiters of high end luxury goods in Canada. In a recent trademark case involving copyright infringement the court awarded damages of $1.98 million for copyright and trademark infringement with a further punitive damages award of $500,000.
The case name is Louis Vuitton and Burberry v Singga Enterprises, and it is important because it follows the principles set out by the British Columbia Supreme Court in an earlier case Louis Vuitton Malletier SA v 486353 BC Ltd: this principle is that the shield provided by a company cannot be used to protect directors and senior employees from the results of their behaviour if they deliberately engage in selling counterfeit goods.
It is a feature of counterfeit cases that the alleged counterfeiters rarely produce any sort of documentary evidence to show the extent of their business or their counterfeit dealings. This causes great difficulty to the courts in trying to estimate the amount of financial damage that has been caused and also in the amount of financial gain by the counterfeiters.
In order to deal with this sort of situation in 1997 the Canadian courts developed a strategy to try and estimate the amount of damages in counterfeiting cases. Where the counterfeiter operates from temporary premises such as an out-door market then damages will be $3000, operating from a shop will incur damages of $6,000. The manufacturer or distributor of counterfeit goods can expect damages of $24,000 to be levied. These figures have been adjusted for inflation, and the court calculated the amount in 2009 should be $30,000 and then multiplied this by the number of inventory turn-overs, to reach a much higher figure for damages.
The question then arises of awarding punitive damages. One of the purposes of punitive damages is to ensure that the counterfeiter cannot treat ordinary damages as merely part of the cost of carrying out counterfeit business, but will be financially hit hard. This is in order to show the courts disapproval of the counterfeiter's behaviour and it is particularly relevant, where the counterfeiter's conduct has been malicious, oppressive, arrogant, dismissive of the rights of the true owner and other behaviour, which is generally disapproved of by the court. The courts feel that the amount to be awarded in punitive damages should be sufficient, at least, to register sufficient impact that it attracts the counterfeiter's attention, and basically makes him think hard about repeating that sort of behaviour. This also gives the court the option of distinguishing between two or more counterfeiters in the same case, by punishing one far more severely than the other, where one of them has shown contrition for their behaviour and given the court cause to believe that they will not repeat any of their offending actions. The court is thereby implicitly recognising that the offender will try and avoid such behaviour in the future. To use an English idiom, It will allow the court to ’throw the book’ at the main offender.
By following the principles of the earlier case, the Court made clear that Canada's courts are intending to develop a realistic set of financial punishments to stop individuals using the cloak of corporate anonymity to carry out criminal counterfeiting activity.
The plaintiffs in this case, Louis Vuitton and Burberry, are well known for their pro-active stance on the prosecution of those who breach the copyright on their products and thereby defraud the public into buying cheap imitations of their products and thereby also diminishing the value of their brands. The Anglo-Saxon system of precedent in common law countries means that these cases can, and almost certainly will, be cited in future as persuasive arguments for how the court should behave in other common law jurisdictions, such as the USA, UK, South Africa, etc, in cases involving claims for damages for breach of copyright of trademarks, Logos, and counterfeiting. I anticipate that the two plaintiff companies will make sure the lawyers they instruct in other Common Law jurisdictions will have this precedent before them in future cases.
The Canadian courts have shown a lead in providing a practical financial solution to a difficult problem of estimating damages in counterfeiting cases where the defendant claims they have no financial records of the number of transactions occurring. I anticipate that busy courts in other countries will seize on this of setting tariffs and start to introduce it into their own systems.